Tech entrepreneurs face hidden biases

ENTREPRENEURSHIP

John Tozzi

Updated
6:45 pm PST, Saturday, December 15, 2012

Silicon Valley's elite startup accelerator is getting more selective.

Paul Graham recently announced that the number of companies accepted to Y Combinator, the Mountain View program called the "Harvard of entrepreneurship," will likely shrink to fewer than 50, from 84, over the summer because "more things than usual broke" with the larger batch.

Looking for signs indicating which applicants would run into trouble led Graham to an unusual admission of bias: The entrepreneurs that Y Combinator interviewed in the afternoon and cleared the first hurdle were more likely to fail eventually than those accepted in the morning.

Graham's conclusion: "It turned out that, like judges, we were more tolerant after lunch."

Influencing decisions

Graham's discovery is just one example of how decisions can be influenced by unexpected factors. Hidden bias is a risk in all sorts of systems that aspire to be objective.

Pharma-funded drug research finds more favorable outcomes than government-backed trials. Hiring managers are less likely to call back job applicants named Lakisha and Jamal than Emily and Brendan. University tech transfer officers reviewing the same invention are less likely to recommend commercializing it if they think the inventor was a woman. And even middle-aged white guys in Silicon Valley feel they have to dress down and shave their gray hair to compete with younger, hoodie-clad candidates for top jobs at startups.

None of this is evidence of deliberate discrimination. But the unconscious biases of well-intentioned people raise doubts about Silicon Valley's supposed meritocracy.

Entrepreneurs had a better shot at getting into Y Combinator if Graham's team reviewed their applications with full bellies. It's not a big leap to imagine that some people who invest in startups have unconscious preferences about the gender, race and age of the entrepreneurs they bet on, despite vehement denials that such biases play a role in the tech world.

Women fare poorly

Women make up less than 7 percent of executives at VC-backed companies, a lower proportion than in the Fortune 500. At Y Combinator, only 4 percent of founders were women as of two years ago, founding partner Jessica Livingston wrote at the time. She suggested a slim pool of women applying to Y Combinator was to blame.

Livingston also acknowledged: "It's been true in the past and probably is still true to some extent that investors discriminate against women. Not necessarily consciously, but their models of the ideal founder are current successful founders, who are mostly men."

Graham declined an interview request, writing in an e-mail that "a lot of the things we discovered would stop working if people knew about them."

Instant decisions

"What's going on below the level of conscious awareness is that we make a split-second decision," she says. "This is an entrepreneur. This isn't an entrepreneur. This person fits our culture. This person doesn't fit our culture." Once that impression is made during an interview or pitch meeting, she says, "we then spend the rest of the time looking for confirming evidence."

Of course, in a healthy market, investors who see past these biases should be able to clean up by backing entrepreneurs others dismiss. Klein says she expects that to happen. There's already evidence that public companies with women board members outperform those with all male directors.

Venture capitalists looking for the best investments should be aware that factors they're not conscious of may sway their decisions. And entrepreneurs aiming to get into Y Combinator should try them after lunch.